Subsidies for Nuclear Power: Is It Really A Tax?

It was one of those “ah-ha moments” when a seemingly mundane statement leapt out of the page and whacked me on the forehead. This time the catalyst was a twitter reply from Chris Pragman (@ChrisPragman) who describes himself as an “Avid Podcast listener, Engineer, Nuclear Power, Fire Protection, and beer geek with a long commute!”

You see, I had posted a tweet earlier in the day about the cost to taxpayers of some “green energy” jobs. There’s a new wind farm in Oregon called Shepherds Flat that received federal cash grants totaling $490 million under the guise of job creation. For that grand sum the Shepherds Flat project will create 35 new jobs. The math is easy; $14 million per “green energy” job.

This tidbit about Shepherds Flat was part of a larger report by the Energy Tribune that among other things compared the relative size of US government subsidies to various energy industries. The report by Robert Bryce calculated subsidy dollars per unit energy produced and concluded the renewable energy industry receives 6.5 times more federal government subsidies than the nuclear industry, and 12 times more than the oil and gas industry. That fact really didn’t surprise me considering the billions of dollars in grants, production tax credits, and favorable depreciation rules the government lavishes upon anything branded with the “renewable” label. Then Chris asked a great question, “What do they consider nuclear subsidies?”

When I dug into that question I learned the Congressional Budget Office is tasked with tracking the amount the government spends subsidizing various industries, and they publish their findings periodically. There it was on page 3: $900 million in “subsidies” for the “favorable tax treatment of nuclear decommissioning funds.” Hmmm. What could that be?

You see, every nuclear plant owner is required by federal law to set aside funds to ensure there’ll be enough money to pay for decommissioning the plant when the time comes. Typically plant operators add to the fund each year and over time the fund grows until it’s used. The NRC monitors each fund and will require plant owners to make additional payments if they think they’re behind. These funds are essentially forced savings accounts that add to each nuclear plants annual operating expenses.

So what’s the “favorable tax treatment?” It turns out Title 26 of the United States Internal Revenue Code requires interest or other investment earnings of nuclear plant decommissioning funds to be taxed at “only” 20%. Maybe I’m alone in this, but being required by law to set up a fund, then being taxed on that fund’s growth hardly fits the definition of a “subsidy!” Other sources of energy are not required to set up such funds – they carry the potential future costs of dismantling equipment as liabilities on their balance sheets. In the case of nuclear plants they’re forced to set aside capitol in government mandated and monitored funds, then the government takes 20% of the fund’s earnings.

Anyway, in 2009 the CBO calculated this “favorable tax treatment” to be worth $900 million, and they called that a “subsidy.” That’s quite a different kind of subsidy from the cash grants, tax credits, and accelerated depreciation enjoyed by the renewable energy industry. Personally, I have a tough time viewing this as a subsidy at all.

Chris, thanks for asking the question! I learned something new today, and maybe some of you out there did too.

Happy Birthday to This Week in Nuclear!

On Dec 27 This Week in Nuclear will turn seven years old. I would like to express my heartfelt “thanks” to all of you who have supported and continue to support the blog and podcast!